General Growth says it will consider acquisition offers

December 18, 2009

General Growth Properties, the Chicago shopping mall owner that Indianapolis-based Simon Property Group Inc. is interested in buying, said the company is considering all acquisition offers and may sell shares to the public to raise capital.
General Growth, the nation’s second-largest mall owner, is seeking to emerge from bankruptcy after amassing $27 billion in debt during an acquisition spree.

Its board and management are evaluating options to reduce debt and also are “considering all indications of interest in the company,” General Growth said Thursday in a statement.

On Tuesday, the company said a bankruptcy court approved its plan to restructure $10.25 billion in debt. It also is considering a plan to restructure another $3 billion of additional secured debt.

Simon, the nation’s No. 1 mall owner, and Brookfield Asset Management, a Canadian company that owns real estate worldwide, have emerged as potential suitors of General Growth.

“They’re going to have their opportunity to step forward,” Thomas Nolan, president and chief operating officer,” told Bloomberg News. “From our standpoint, we acknowledge that. We are looking at as many options as we can, because our ultimate endgame is to maximize our enterprise value for our stakeholders.”

Nolan said that both Simon and Brookfield have bought some of General Growth's unsecured debt.

“We don’t have confirmation of how much they own,” Nolan told Bloomberg News. “But we certainly understand that that’s occurred.”

Rich Moore, managing director with RBC Capital Markets in Solon, Ohio, told Bloomberg that General Growth may have issued the statement to pump up its value.

“There’s a recognition by management that they need to tell people what we should already all know -- that these guys are out there,” he said.  “I wouldn’t put it past them to ignite a little bit a bidding war.”

General Growth filed the biggest real-estate bankruptcy in U.S. history in April. Founded in 1986, it has 200 malls in 45 states, and had 2008 revenue of $3.4 billion.

“It’s very clear that these assets would perform better in pretty much anyone’s hands,” David M. Fick, a Stifel, Nicolaus & Co. managing director, told Bloomberg. “We think the most natural buyer is Simon.”

Simon has 320 malls in 41 states, plus properties in South America, Europe and Asia. It had 2008 revenue of $3.8 billion.

Simon has positioned itself to make acquisitions by conserving cash and by paying most of its dividend in stock. On Dec. 8, it agreed to purchase Baltimore-based Prime Outlets Acquisition Co. for $2.3 billion including the assumption of debt. Prime Outlets owns 22 properties.

Stephen Sterrett, Simon Property’s chief financial officer, said on Dec. 8 that the Prime Outlets purchase “doesn’t alter our thinking about General Growth” and that Simon was “still evaluating the situation.”


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